ECB fails to deliver on euro pledge - ABC Online

ASHLEY HALL: This time yesterday, it was being billed as a possible turning point in the eurozone debt crisis.

But this morning, financial markets are decidedly under whelmed by the outcome of last night's meeting of the European Central Bank.

The president of the European Central Bank failed to deliver on his pledge to "do whatever it takes" to save the eurozone.

Mario Draghi did say the ECB would prepare to buy Spanish and Italian government debt, but only if individual nations requested the aid as a last resort.

The disappointment was felt acutely in Europe, where Spain's main share index plunged more than 5 per cent.

With the latest, here our business editor Peter Ryan.

PETER RYAN: Financial markets are understandably numb after the many assurances and calls for action during the three year debt crisis.

But late last week, they started listening when the president of the European Central Bank (ECB) delivered this long awaited and surprisingly direct pledge.

MARIO DRAGHI: The ECB is ready to do whatever it takes to preserve the euro, and believe me, it will be enough.

PETER RYAN: Late last night Australian time, Mario Draghi held a press conference after leaving the eurozone's benchmark rate on hold at three-quarters of 1 per cent.

Reporters had expected that but more importantly they wanted Mr Draghi to expand on his is pledge to save the eurozone given the critical flashpoints of Spain and Italy.

What they got was another sound bite.

MARIO DRAGHI: The euro is irreversible.

PETER RYAN: Global markets had been expecting a lot more - perhaps a shock and awe announcement in which trillions of euros would be provided to underwrite fragile governments and to breathe confidence into struggling European banks.

Instead, Mr Draghi signalled the ECB might buy government debt from Spain and Italy but only after official EU funds had been exhausted and the nations themselves came cap in hand.

MARIO DRAGHI: The governing council may undertake outright open market operations of a size adequate to reach its objective.

PETER RYAN: Mr Draghi's unwillingness to provide a financial bazooka has been driven in large part by Germany, which is resisting any strategy that would match the quantitative easing, or metaphorical money printing, used by the US Federal Reserve and the Bank of England.

Financial markets were not impressed. Shares in Europe dived, Spain closed 5 per cent weaker, and stocks in France and Germany lost round 3 per cent.

Matt Sherwood, head of investment market research at Perpetual, says it all about over-promising and under-delivering.

MATT SHERWOOD: Well in many ways the ECB president over-reached with his statement about whatever it takes because he was initiating an expectation of a real shock and awe tactic and he really over-reached or breached his mandate. So he was promising to do, or seemingly promising to do a lot of the things he's actually not authorised to do, and so the EBC really is just sort of saying we are going to do what we were pretty much doing before.

PETER RYAN: Here's what Matt Sherwood, and presumably most others, wanted to hear from Mario Draghi.

MATT SHERWOOD: We are going to quantitative ease, we are going to force that capital into the banks. We are also going to go into the primary and the secondary markets to lower bond yields and we are going to do this for three years. We are going to help governments get over their funding issues over that period.

PETER RYAN: In a sense, the ECB did deliver on last week's "whatever it takes" pledge.

It is willing to take action, and it might spend a lot of money doing it, but the lack of detail left markets unsettled.

David Kuo, of the financial website Motley Fool*, says there's also a bit of unhelpful fine print - the ECB won't be doing anything for at least a month.

DAVID KUO: Well, this is the bit that is making people tear their hair out because what they're saying is that you've got this huge problem in Europe and of course, August, everybody, you can't find anybody. There is no point talking to anyone.

PETER RYAN: Australia was unable to avoid the global fallout, although the All Ordinaries Index was down 0.8 of 1 per cent in late morning trade.

Markets are now looking to the United States, where official jobs figures out overnight could be problematic for president Obama with unemployment tipped to remain stubbornly high at 8.2 per cent.

ASHLEY HALL: Business editor Peter Ryan.

*EDITOR'S NOTE: (03/08/2012) This transcript has been amended to correct the name of the financial website, Motley Fool.